UPDATE 1-S&P cuts Lebanon's credit rating to "CCC+"

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NEW YORK, Jan 31 (Reuters) - Standard & Poor's cut its long-term sovereign foreign currency credit rating on Lebanon by one notch to "CCC+" from "B-", citing an increase in political instability and the likelihood it will be protracted.

"The ratings on Lebanon were lowered as a result of the political impasse that has raised tensions within Lebanon, and for which no easy resolution appears in sight," sovereign credit analyst Ben Faulks said in a statement.

The credit, which is in the highly speculative range and now seven notches below investment grade, was given a stable outlook.

S&P's rating is now one notch below the "B-" rating given by Fitch Ratings and the "B3" rating from Moody's Investors Service.

Lebanon has been going through the worst political crisis since the 1975-1990 civil war. The country has been without a president since November as leaders of its rival factions are unable to agree on a national unity government.

Sectarian violence between followers of the anti-Syrian governing coalition and its pro-Damascus rivals erupted a year ago.

"This stand-off has increased political instability, which could shake confidence in the financial sector, thereby compromising domestic banks' ability to lend to the government, and could delay reforms crucial for putting Lebanese public finances on a more sustainable path," the statement said.

On the positive side, Faulks said the primary surplus of more than 3 percent of gross domestic product in 2007 was better than the International Monetary Fund had targeted in its Emergency Post-Conflict Assistance program. In addition, the ratio of debt to gross domestic product has declined.